The Credit Card Accountability, Responsibility and Disclosure Act was introduced to protect consumers from some of the deceptively dangerous policies that credit card companies impose on their customers. In many ways the new law has helped, but it doesn’t provide the safety net that many would expect.
With kids about to head off to college and meet the temptation of opening credit cards, it’s crucial to understand the details that could still lead a naive consumer into excessive credit card debt. Here’s a few of the surprises related to interest rates that might lead to debt trouble for those who aren’t careful.
High interest rates aren’t prohibited
Interest rates can still go as high as the market allows. Right now, some companies have interest rates on their cards as high as 50% for those who are deemed high-risk borrowers.
Your interest rate isn’t necessarily set in stone
The CARD Act officially says they can’t, but to every rule there is an exception. Actually, it’s a case where the exception becomes the rule. Credit cards are either fixed rate or variable rate. If your rate is fixed, you’re safe from hikes for a year. However, some cards are offered with a variable rate, which means your interest rate could jump at the most inconvenient time.
The 45-day notice of a rate hike is misleading.
Requiring banks to give cardholders 45-day notice for interest rate hikes sounds like a relief, but don’t put that notice in a drawer for too long. The 45-day requirement of the CARD Act applies to the due date of the next bill, but as soon as 14 days after they’ve mailed a notice of a rate hike, they can start charging the higher rate on new purchases. Not paying attention can lead to some surprises when that bill comes.
These are just some of the things to watch for with the CARD Act. In the next post, learn why college students aren’t as safe from credit card debt as one might think.
Fox Business: “Six Surprises Hidden in the Credit Card Act,” Lynnette Khalfani-Cox, Aug. 22, 2011